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State Sales Tax Exemption for Qualified Data Centers

Overview

A "data center" is a facility of at least 100,000 square feet in Texas that has been, or will be, specifically constructed or refurbished to house servers and related equipment for processing, storing or distributing data. The Comptroller's office may certify single-occupant data centers that meet specific requirements related to capital investment and job-creation as "qualifying data centers."

Certain items necessary and essential to the operation of a qualified data center are temporarily exempt from the 6.25 percent state sales and use tax. Local sales taxes are due on purchases of these qualifying items.

Applicants must hold a Texas Sales or Use Tax Permit or a Texas Direct Payment Permit or must apply for a sales or use tax permit or direct payment permit when submitting the data center application.

Applicants must meet all of the following for certification as a qualifying data center:

The qualifying owner, operator or occupant of the applicant data center must (jointly or independently) commit to:

creating at least 20 qualifying jobs in the county in which the data center is located, not including jobs moved from one Texas county to another; and

making, or agreeing to make, a capital investment of at least $200 million in the applicant data center over a five-year period. The five-year period begins on the date the data center is certified by the Comptroller as a qualifying data center.

Documentation outlining the plan to meet the capital investment and jobs requirements must be provided with the application. Information provided on and with the application is confidential.

The applicant data center must:

be, or will be, located in Texas;

have, or will have, at least 100,000 square feet of space in a single building or portion of a single building located in Texas that is, or will be, used by a single qualifying occupant as a data center (the single qualifying occupant may not sublease any portion of the real or personal property within the qualifying data center);

be, or will be, specifically constructed or refurbished for use primarily as a facility to house servers and related equipment and support staff in the processing, storage and distribution of data;

have, or will have, an uninterruptible power source, generator backup power, a sophisticated fire suppression and prevention system, and enhanced physical security that includes restricted access, video surveillance and electronic systems;

not be used primarily by a telecommunications provider to deliver telecommunications services; and

not be subject to an agreement limiting the appraised value of the data center's property under Tax Code Chapter 313.

After the data center is certified, the Comptroller's office will issue a unique registration number to the qualifying data center and each qualifying owner, qualifying operator and qualifying occupant who applies and establishes eligibility for the exemption. If a party qualifies for multiple positions, such as a qualified owner who is also the qualified operator, the Comptroller will issue only one number.

The sales tax exemption for a qualified data center is temporary and lasts for 10 or 15 years beginning on the date the Comptroller's office certifies the data center. The length of the exemption period depends on the amount of capital investment the qualifying owner, operator and occupant make.

10 years from certification date – the qualifying owner, operator or occupant of a data center (either jointly or independently) makes a capital investment of at least $200 million, but less than $250 million within the first five years after certification.

15 years from certification date – the qualifying owner, operator or occupant of a data center (either jointly or independently) makes a capital investment of at least $250 million within the first five years after certification.

If the qualifying owner, operator and occupant of a qualifying data center (either jointly or independently) fail to meet one or more of the certification requirements, the Comptroller will terminate the data center's certification and revoke all related qualifying owner, operator and occupant registration numbers. Certification requirements include:

fulfilling the capital investment commitment within five years of the date the data center is certified;

creating at least 20 full-time, permanent, qualifying jobs within five years of the date the data center is certified; and

maintaining the qualifying jobs for at least five years.

Each person who has his or her registration number revoked is liable for the state sales or use tax, including penalty and interest from the date of purchase, on all tax-free purchases made under the qualified data center exemption.

All qualifying owners, operators and occupants of a qualifying data center must keep complete records to document all tax-free purchases made under the qualifying data center exemption and to confirm payment of the local sales and use tax. The records must be retained until the data center's certification expires. In the event of a revocation, all records must be retained until all assessments have been resolved.

The retailer is required to keep the qualifying data center exemption certificate (PDF) containing the registration numbers of the purchaser and its associated data center and all other financial records relating to the exempt sale, including records to document the retailer's collection of the local sales and use tax. The retailer must be able to match invoices of tax-free sales to the purchaser's exemption certificate. The retailer can accomplish this by entering the registration numbers for the purchaser and associated data center on each invoice.

To process a refund, a retailer will use the Comptroller's online verification system to check if the purchaser had a valid data center registration number when the item was purchased.

Purchasers with a valid data center registration number. The retailer can refund the sales tax or give the purchaser an Assignment of Right to Refund (PDF), as long as the purchaser provides a qualifying data center exemption certificate (PDF) with the required registration numbers to the retailer when making that request. Purchases made prior to the date a data center is certified by the Comptroller as a qualifying data center are not eligible for refund.

Purchasers who are new owners, operators or occupants of an existing, certified qualifying data center. New purchasers must apply for a registration number. The new applicant (purchaser) should include the registration number of the existing qualifying data center with the application. When the Comptroller's office processes the application, the effective date of the new applicant's (purchaser's) registration number will be made retroactive to the date the associated qualifying data center was certified by the Comptroller. The purchaser can submit the refund request to the Comptroller's office with the application for registration or return to the retailer for a refund after receiving the registration number.

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